The interpretation to be given to 5 U.S.C. § 552a(e)(2) is an issue that has recently been raised by disclosure personnel. 5 U.S.C. § 552a(e)(2) provides that each agency etc

The OMB Guidelines (40 Fed. Reg. 28948, 28961 (July 9, 1975)) state the agencies should consider various factors in determining whether it is practicable to collect information from the subject individual.

Darst v. SSA, 172 F.3d 1065, 1068 (8th Cir.1999) (SSA employee’s application for SSA benefits reviewed). It would appear that a sound practice is if an investigator determines that obtaining information from the subject individual is not practicable, the reasons for the determination should be set forth in writing and maintained for possible later use.

The (e)(2) requirement also applies to tax records. The IRS has exempted Criminal Investigation investigatory records from this requirement pursuant to 5 U.S.C.§ 552a(j)(2). However, Examination and Collection records are not exempt; thus, information for these records should be collected from third parties in a manner consistent with section (e)(2) and the factors identified by OMB. Accordingly, it is important to attain a balance between ensuring that the subject individual is contacted first whenever practicable and ensuring that an investigation is conducted in a manner most likely to obtain true and accurate information.

TERRY L. JONES, et ux., et al. v. U.S., 207 F.3d 508 (8th Cir. 2000)

In 1991, the plaintiffs filed an I.R.C. § 7431 lawsuit seeking damages for unauthorized disclosure in violation of I.R.C. § 6103(a) in excess of $112 million. Plaintiffs alleged that one or more IRS employees wrongfully disclosed plaintiffs’ tax return information to a confidential informant, who, in turn, notified the local media that the IRS was conducting a search of plaintiffs’ company, Jones Oil, pursuant to a search warrant. During the liability phase of the trial, the court determined that I.R.C. § 6103 did not authorize the special agent’s disclosure to the informant of the search warrant’s impending execution, but that the United States was not liable for damages because the taxpayers failed to prove the disclosure was based on a bad faith misinterpretation of section 6103. Jones v. U.S., 898 F. Supp. 1360 (D. Neb. 1995). The Eighth Circuit remanded the case, holding that the United States bears the burden of proving good faith under I.R.C. § 7431(b)(1). Jones v. U.S., 97 F.3d 1121 (8th Cir. 1996). On remand, the trial court found that the special agent did not make the unauthorized disclosure based upon a “good faith, but erroneous interpretation” of I.R.C. § 6103.

Jones v. U.S., 954 F. Supp. 191 (D. Neb. 1997). Consequently, the Government was liable for damages and on June 19, 1998, the court awarded actual damages to Terry and Patricia Jones in the amount of $5.4 million. Jones v. U.S., 9 F. Supp. 2d 1119 (D. Neb. 1998) (see Disclosure Litigation Bulletin No. 99-1).

On appeal, the Eighth Circuit concluded that disclosure of information under the

specific circumstances of the case was not authorized by regulations pursuant to I.R.C. § 6103(k)(6) (investigative disclosures), but that the district court erroneously included pre-judgment interest of $2.5 million in its damages award. The court also upheld the district court’s refusal to award punitive damages and attorneys’ fees.

The Court of Appeals also held that the Government failed to carry its burden of

showing that the special agent’s actions were within the “good faith” safe harbor of I.R.C. § 7431, noting that none of the regulations that implement I.R.C. § 6103(k)(6) allows for the disclosure of return information under the circumstances of this case.

Both parties requested a petition for rehearing. The Government petitioned for rehearing on the circuit court’s award of post-judgment interest, and also sought rehearing en banc on the court’s holding that the special agent’s actions were not the result of a good faith but erroneous interpretation of I.R.C. § 6103(k)(6). Plaintiff sought a petition on the grounds that pre-judgment interest was properly awarded by the district court, and that the district court erred in not awarding punitive damages and attorneys’ fees. The Court of Appeals denied the Government’s petitions for rehearing and rehearing en banc. Jones v. U.S., 2000 U.S. App. LEXIS 12195 (8th Cir. June

2000). Plaintiff’s petition is currently pending.

The 5th Circuit also held that I.R.C. § 7431 is the exclusive remedy for unauthorized disclosures of return information. Plaintiff had also sought damages for unauthorized disclosures under the Privacy Act. However, the court stated that “I.R.C. § 6103 is a more detailed statute that should preempt the more general remedies of the Privacy Act.”

The D.C. Circuit addressed the scope of “tax administration” (as defined in I.R.C. § 6103(b)(4)) within I.R.C. §§ 6103(h)(1) and (h)(4). I.R.C. § 6103(h)(1) allows disclosures of returns and return information to other Treasury employees “whose official duties require such disclosure for tax administration purposes.” I.R.C. § 6103(h)(4) allows disclosures of returns and return information “in a Federal or State judicial or administrative proceeding pertaining to tax administration . . if the taxpayer . . . is a party to the proceeding . . . .” The circuit court held that the disclosures to his supervisors were authorized under I.R.C. § 6103(h)(1), and citing Hobbs v. U.S., 209 F.3d 408 (5th Cir. 2000), held that the disclosures in the administrative proceedings were likewise authorized (under I.R.C. § 6103(h)(4)). The D.C. Circuit stated that these were proper tax administration disclosures “for purposes of enabling the IRS to conduct its internal investigation of [plaintiff’s] tax history, and to explain the basis for the termination of his employment in the subsequent administrative proceedings.”

As in Hobbs, supra, the circuit court determined that I.R.C. § 6103 preempted plaintiff’s Privacy Act claims for unauthorized disclosure of tax return and return information.


§ 6302. Mode or time of collection


(b) Discretionary method

Whether or not the method of collecting any tax imposed by chapter 21, 31, 32, or 33, or by section 4481 is specifically provided for by this title, any such tax may, under regulations prescribed by the Secretary, be collected by means of returns, stamps, coupons, tickets, books, or such other reasonable devices or methods as may be necessary or helpful in securing a complete and proper collection of the tax.


what 6331(a) says:

If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. Levy may be made upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official. If the Secretary makes a finding that the collection of such tax is in jeopardy, notice and demand for immediate payment of such tax may be made by the Secretary and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in this section. [Emphasis added]

Not only is this 'notice of levy' presented to third parties as though reflecting a perfected and enforceable claim-- despite lacking even the least gloss of judicial legitimacy; but it is based upon a statute which declares, in its very first clause, that it applies exclusively to federal workers! Don’t be misled by the “any person” phrase and imagine that it modifies the subsequent specification: When the compensation of federal workers is explicitly identified as reached by the statute in this fashion, and that of non-federal workers is as prominently left out, the rules of statutory construction say unambiguously that the latter is excluded. (It doesn’t say, “In addition to the wages and salaries of everybody else, those of officers, employees and elected officials...”, does it?). Certainly there is a process by which any person who has been properly found liable for a debt to the government can be levied against, but only government workers as specified in 6331(a) (and in 26 CFR 301.6331-1, which expands the class to a few other specific federally-connected workers) can be levied against by a mere 'notice of levy'.

Consequently, although the version of the 668-W given to a company requires turning over “...this taxpayer’s wages and salary that have been earned but not paid yet...”, in the case of a private-sector worker this command is meaningless. This simple reality is only emphasized by the cheap and shabby ploy of leaving 6331(a) off the form. The IRS wants it to be assumed that its 'notice of levy'-- has universal applicability, and therefore seeks to conceal the contrary truth.

The 668-W ploy doesn’t rely entirely on that ‘see no evil’ thing, of course. Cooperation is ‘encouraged’ by inclusion on the back of the 668-W of selected excerpts of another section of law relating to levy-- 6332: Surrender of Property Subject To Levy. Those excerpts warn that “anyone in possession of (or obligated with respect to) property or rights to property subject to levy upon which levy has been made” shall turn it over on demand of the Secretary or risk being targeted themselves for the amounts involved. Of course, 6332 only applies to “property subject to levy” as identified-- and limited by-- the conveniently missing section 6331(a)... Thus, this threat is just another facet of the 6331(a) ploy; but it is one with a particularly corrupting aspect. The subtext of its inclusion is, “Even if YOU know or learn the truth and refuse to play along, what are the odds that people who owe YOU money are going to be as upstanding when we send a version of this same notice to them?” Putting the blinders on, and leaving the fight for due process and the rule of law in the hands of the original target, is made to seem the wisest course.